When people find themselves in overwhelming debts that they cannot manage, filing for bankruptcy can be a better way to get out of such debt. There are two options which are available to an individual when filling bankruptcy. The first option for filing bankruptcy is Chapter Seven bankruptcy. This option is also referred to as liquidation bankruptcy. In this option, an individual like Mary can have most, if not all of her dischargeable debts dismissed. In exchange, some of their assets may be sold to pay the creditors (Lee, 2007).
The second option of bankruptcy is called Chapter 13 bankruptcy. This option applies to both individuals and businesses. Chapter 13 bankruptcy helps individuals reorganize their debts into flexible repayment options. This method allows the debtors to pay off their debts for over some years. Depending on some factors, individuals may pay some, or all the amounts through their repayment plan (Lee, 2007).
The availability of these two options to many can be a problem to Mary. This is because her disposable income may not be enough to repay the debts. The amount of the combined loan is much higher than her disposable income.
Factors that Mary can consider in making her decisions.
- She must make sure she is on the current filing system to file chapter 7.
- Make sure that she has not filed chapter 13 in the past four years or chapter 7 in the last two years.
- She must make sure that she is not a business entity.
Here is what I would recommend to Mary:
I would recommend her to attend a credit counselling before filing bankruptcy- credit counselling agencies can help her negotiate with the creditors, which can be stressful on her own. They can also help her create a realistic budget.
Lee, S. H., Peng, M. W., & Barney, J. B. (2007). Bankruptcy law and entrepreneurship
Development: A real options perspective. Academy of Management Review, 32(1), 257-272.